Meat production sector – Confident but cautious

• Domestic swine price increased 10.9% mom in May, reaching the highest level since the beginning of the year.
• We expect meat producers to record better results from FY23F regarding higher average swine price and lower input cost.
• We keep BAF and DBC in watch list follow strong recovery in swine price.

Domestic swine price increase significantly in May 2023

Domestic swine price increased 10.9% mom in May 2023, reaching the highest point since the beginning of the year as 1) the sell-off of pig production on the market as the herd affected by African swine fever (ASF) has decreased and 2) concerns about the lack of supply increased when the number of smallholder farmers has decreased 50% in Mar 2023 from 2021. We see that meat producers stock prices have increase significantly since 11 Apr following the swine price upturn (+16.8%) including DBC (+27.6%) and BAF (+16.0%).

We expect swine price to improve from 2Q23F

We attended the 2023 AGM of listed meat production companies, notably most of their managements have a more positive view of the swine price that 4Q22-1Q23 was the hardest time, but then outlook has gradually improved in 2Q23F and will turn better since 3Q23F. In our view, we expect pork prices to improve in 2Q23F (+9.7% qoq) and increase more clearly in 3Q23F-4Q23F (+11.6%/4.0% qoq) to VND62,000/kg – VND65,000/kg as demand recovery while supply from smallholder farmers still be limited to 3Q23F. For 2023F, we expect average swine price to rise 5% yoy to VND59,000/kg.

The toughest time passed but the best yet to come

We expect global agricultural products price to decline in 2023F average by 7-10% yoy which lead to the gradually decrease in domestic animal feed price by 5% yoy. Thus, we expect meat producers’s gross margin (GM) to expand average by 1.0-1.5% pts in FY23F. However, we still see the risk of global grain prices increasing again due to the escalation of Ukraine – Russia tensions and unfavourable weather in main export countries, leading to a high level of domestic animal feed prices in 2023F. In fact, we see that most meat producers set prudent profit after tax (NPAT) plans in FY23F such as VSN (-2.0% yoy), HAG (+0.4% yoy), and BAF (+5.0% yoy).

We keep BAF and DBC in our watch list

We believe that the positive growth outlook has been reflected in the recent increase in meat producers’ stock prices. Therefore we keep BAF and DBC in our watch list. We expect BAF and DBC record GM improve by 1.5%/0.5% pts in FY23F regarding higher average swine price and lower input cost. As the results, these companies’s net profit are forecasted to increase respectively by 6.0% yoy and 23.4 times in FY23F. Downside risks include1) higher-than-expect key material price for animal feed production, 2) weaker-than-expect meat demand, 3) lower-than-expect swine price.

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